Microsoft Word - Business Article_Grow

-1-

www.ebay.com/merchantsolutions

Cash is king when it comes to the financial management of a growing company. The lag between the time

you have to pay your suppliers and employees and the time you collect from your customers is the problem,

and the solution is cash-flow management. At its simplest, cash-flow management means delaying outlays

of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible.

Measuring Cash Flow

Prepare cash-flow projections for next year, next quarter and, if you’re on shaky ground, next week. An accurate cash-

flow projection can alert you to trouble well before it strikes.

Understand that cash-flow plans are not glimpses into the future. They’re educated guesses that balance a number of

factors, including your customers’ payment histories, your own thoroughness at identifying upcoming expenditures, and

your vendors’ patience. Be careful not to assume without justification that receivables will continue coming in at the same

rate they have recently or that payables can be extended as far as they have in the past. Make sure you have included

expenses such as capital improvements, loan interest and principal payments, and that you have accounted for seasonal

sales fluctuations.

Improving Receivables

If you got paid for sales the instant you made them, you would never have a cash-flow problem. Unfortunately, that

doesn’t happen, but you can still improve your cash flow by managing your receivables. The basic idea is to improve the

speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash.

Here are some techniques for doing this:

• Offer discounts to customers who pay on time.

• Ask customers to make deposit payments at the time orders are taken.

• Require credit checks on all new non-cash customers.

• Get rid of old, outdated inventory for whatever you can get.

• Issue invoices promptly, and follow up immediately if payments are slow in coming.

• Track accounts receivable to identify and avoid slow-paying customers. Instituting a policy of cash on delivery

(c.o.d.) is an alternative to refusing to do business with slow-paying customers.

Managing Payables

Top-line sales growth can conceal a lot of problems—sometimes too well. When you are managing a growing company,

you have to watch expenses carefully. Don’t be lulled into complacency by simply expanding sales. Any time and any

place you see expenses growing faster than sales, examine costs carefully to find places to cut or control them.

Some more tips for using cash wisely:

• Take full advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days.

• Use electronic funds transfer to make payments on the last day they are due. You will remain current with

suppliers while retaining use of your funds as long as possible.

• Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you’ll

need their trust and understanding.

• Carefully consider vendors’ offers of discounts for earlier payments. These can amount to expensive loans to your

suppliers, or they may provide you with a chance to reduce overall costs.

• Don’t always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can

improve your cash flow more than bargain-basement prices.

Managing Cash Flow